Key Person Insurance

Who can be a Key Person?

A key person may be anyone directly associated with the business whose loss can cause financial strain to the business. For example, the person could be a director of the company, a partner, a key sales person, key project manager or someone with specific skills or knowledge that are especially valuable to the company.

Key Person Insurance Policy Ownership

Key Person Insurance policies can be owned in a number of ways depending on the needs of the business.

• It is common for a business to own the policy with the claim proceeds being paid directly to the business.
  
• There are no legal or insurable requirements for a policy to be owned by a specific party or entity
  
• There may be circumstances where, for taxation or policy continuation purposes, policies may be owned and paid for by the insured person directly, or owned by another individual.
  

Advantages :

• In case of death of a key person the company is paid money to cope up with the loss and replace such person
  
• Eliminates the need to provide advanced information to the taxing authorities.
  
• The company can also raise funds through loans against permanent life insurance policies
  
• It can be helpful for businesses’ tax planning.
  

Disadvantages :

• The amount on claim or maturity under a Key Person insurance policy is not exempt from taxes under Section 10 (10D) of the Income Tax Act if the company is paying the premiums, unless the policy is assigned to key person who pays the premium
  
• If the policy is surrendered then the amount endorsed is taxable in the hands of key person as profit in lieu of salary